South Korea AI Bubble: KOSPI Is 43% Below Its Peak, Rogoff Warns

The South Korea AI bubble has already burst in the one place a bubble is easy to measure: prices. The KOSPI closed at 5,342.73 on Thursday, November 12, about 43% below the record of 9,385.59 it set in June. Samsung Electronics and SK hynix, the two memory chip makers that carried the index up, have each lost about half their value. The same day, Harvard economist Kenneth Rogoff stood at the Bank of Korea and told the country that a bursting of the wider AI bubble is still to come.

What makes Korea worth studying is that the business behind the stocks never broke. Chip exports are growing at triple-digit rates and both companies are reporting record profits. Korea is a live example of an AI unwind where the prices fall first and the fundamentals keep going.

-43%

KOSPI on Nov 12 versus its June record

~50%

Fall in Samsung and SK hynix from June peaks

+259%

Chip exports in October, year on year

162.3T won

Planned fund from extra tax revenue, about $110B

How far the KOSPI has fallen

The index reached an all-time high of 9,385.59 in June, according to Trading Economics. By then Samsung Electronics and SK hynix together made up more than half of the KOSPI's market value, Trade Brains reported. An index that concentrated does what its two biggest stocks do.

The first leg down came fast. Circuit breakers halted trading on July 28 and July 29, the first time the KOSPI had triggered them on consecutive days, and by then the index was more than 40% below its June high, Futurism reported, citing Bloomberg and Korean media. SK hynix had fallen 9.6% in July after a record profit still missed forecasts, according to Trade Brains.

The autumn brought a second wave. On October 15 the KOSPI fell 7.57%, forcing a 20-minute trading halt, with Samsung down 9.48% and SK hynix down 11.06%, Trade Brains reported. It lost another 3.52% on October 22. In November the swings have run both ways: up 2.24% on November 2, up 4.39% on November 10, up 2.60% on November 11, then down 0.61% on November 12 as reports about Nvidia's chief executive hit chip stocks worldwide.

Swings of that size show a market still searching for a price. Even so, the index is still 28% higher than a year ago, according to Trading Economics. The boom was that large.

Profits and exports are still booming

None of this happened because demand for memory chips collapsed. Samsung forecast third-quarter operating profit of 107.4 trillion won, almost nine times the year-earlier figure, and SK hynix's second-quarter operating profit of 60.5 trillion won was more than six times the prior year's level, Trade Brains reported, citing Reuters. Korea's exports rose more than 90% in October from a year earlier and chip exports rose 259%, according to Yonhap. In the first ten days of November, semiconductor shipments were up 331.2%, Trading Economics reported.

This is the uncomfortable lesson for anyone using earnings as a safety check. A stock can halve while its profits multiply if the price had already assumed more than even record results could deliver. SK hynix's July drop, on a record quarter that fell short of forecasts, was that mechanism in one day. Our guide on how to detect market bubbles covers why expectations, not earnings, set the breaking point.

What Rogoff told Seoul

Rogoff, a former chief economist of the International Monetary Fund, spoke on November 12 after a lecture at the Bank of Korea on debt and interest rates. His message was aimed less at investors than at the finance ministry. Korea, he said, has been a huge beneficiary of the boom, almost like a suburb of Silicon Valley, according to the Korea Herald, and it should not spend the windfall as if it were permanent.

The fiscal stakes are concrete. The government is pushing a 162.3 trillion won, or about $110 billion, future response fund paid for with additional tax revenue, the Seoul Economic Daily reported. Rogoff urged Korea to build fiscal room while the chip boom lasts and argued that countries with lower debt absorb an AI shock better, while adding that prudence does not have to mean austerity. A Bank of Korea official told JKN that the seminar was held at Rogoff's suggestion and does not reflect the bank's official position.

His point lines up with the split in the data. Stock prices have already taken a 43% hit, but exports and the extra tax revenue behind the fund still rest on record chip profits. If AI spending in the United States slows, that second support is the one at risk, and it is the one the budget depends on.

What Korea's bust says about the AI trade elsewhere

Three features of the Korean episode travel well. The first is concentration: two companies were more than half of the index, so there was nowhere inside it to hide. The second is that record profits did not protect prices. The third is that the unwind has come in waves over five months, with sharp rallies between them, and not as one crash.

China's market traced a similar path, which we covered in China AI Bubble: STAR 50 Falls 40%. The US market is far less concentrated than the KOSPI was in June, but the direction of the comparison is the same one we worked through in Is the AI Bubble Bursting?: chip stocks fell hard while spending plans held.

The case for a rebound

Not everyone in Seoul reads this as the start of something worse. KB Securities looked at about 20 years of data since 2005 and found that after falls of 40% to 50% or more from a peak, Samsung shares rose within three months 97% of the time and SK hynix shares 81% of the time, the Seoul Economic Daily reported. Kim Dong-won, who heads KB's research center, said earnings estimates for 2027 and 2028 are being revised up for both companies. That is a count of how often the shares rose, not a measure of how much, and past frequency is not a forecast. Foreign investors were net buyers of 370.4 billion won of Korean shares on November 12 even as the index fell, according to IANS.

How this relates to the AI Bubble Index

The AI Bubble Index tracks the US-centered AI trade, not the KOSPI, but it has been cooling over the same weeks. It read 61.5 after Wednesday's close, in its Normal band, down from 62.2 a week earlier and from a high of 68.5 on October 5. That is the lowest reading of the past 64 sessions.

The families tell a story close to Korea's. Momentum has dropped to 48.3 and valuation and concentration to 55.4 as prices fell, while sentiment and attention is at 96.9 and Fragility, at 69, sits above Euphoria at 61.3. The demand gap is the coolest reading at 40.6. Prices are deflating while attention and stress stay high. The methodology explains how each family is built, and our history of tech bubbles shows how often past unwinds arrived in stages.